Recent international news has been dominated by a huge Turkey-Syria earthquake and by mounting tension between the USA and China regarding the shooting down of a balloon and unidentified flying objects in US airspace. In the UK the Bank of England raised interest rates once again in early February. Inflation is decreasing slightly but remains high. Many households will face increased Council Tax bills as councils seek to balance their budgets.
- Tens of thousands of people have been killed and more have been injured by a huge earthquake which struck Turkey near the Syrian border last week.
- Despite record trade between the US and China last year, tensions have been rising since the US discovered and shot down a Chinese balloon and other unidentified flying objects in US airspace.
- On 2nd February, the Bank of England (BoE) raised interest rates by 0.5% to 4%. The BoE raised interest rates in an effort to cool the economy and reduce demand, in an effort to slow rising prices.
- The Consumer Prices Index (CPI) rose by 10.1% in the 12 months to January 2023, down from 10.5% in December 2022.
- Council Tax rises are imminent. Research from the County Council Network has found that 84 councils out of 114 who have published their 2023/24 budget proposals so far plan to raise council tax by the maximum permitted which is 4.99%. With inflation at 10.5%, many councils are facing multi-million-pound funding gaps, which have built up under this period of high inflation and which they need to close to balance their budgets.
- In the last 12 months, the average UK house price increased by 9.8% to December 2022. The West Midlands saw an above-average increase at 10.7%.
- Ford has announced plans to cut 1,300 jobs in the UK over the next two years, comprising a fifth of its total UK workforce. It is part of a major restructuring programme which will see Ford cut 3,800 jobs overall across Europe.
- Nicola Sturgeon has confirmed she is resigning as Scotland’s First Minister after more than 8 years in the role. Echoing Jacinda Ardern (Prime Minister of New Zealand) stepping down last month, Sturgeon stated that the pressures of the job had taken its toll, especially during the Covid-19 pandemic.
The Economy in the West Midlands
- The System Average Price (SAP) of gas decreased by 6% in the week to 5th February 23, 23% lower than the equivalent level in 2022. Compared to the pre-Covid-19 baseline, it was 510% higher.
- 6% of responding West Midlands (WM) businesses expect the main concern for business in February 23 will be energy prices.
- 3% of responding WM businesses reported that the main challenge experienced when selling goods or services in the last 12 months was transport costs.
- 4% of WM businesses reported that exporting stayed the same in December 2022 when compared to December 2021. 24.1% of WM businesses reported exporting less and 14.7% reported exporting more.
- 2% of responding WM businesses reported that importing stayed the same in December 22 when compared to the same month in the previous year. 14.4% reported importing less and 15.7% reported importing more.
- Business confidence in the West Midlands rose nine points during January to 18 per cent, according to the latest Business Barometer from Lloyds Bank Commercial Banking.
- The WM Business Activity Index slightly rose from 48.9 in December 2022 to 49.0 in January 2023 – although, remained below the 50-growth mark for the sixth consecutive month.
- The UK Business Activity Index decreased from 49.0 in December 2022 to 48.5 in January 2023.
- Out of the 12 UK regions, the WM was the third highest for business activity in January 2023.
- WM Future Business Activity Index increased from 65.3 in December 2022 to 76.5 in January 2023. 12 UK regions, the highest for Future Business Activity in January 2023.
- The WM Export Climate Index increased from 48.2 in December 2022 to 49.7 in January 2023.
- The WM Employment Index increased from 50.8 in December 2022 to 52.2 in January 2023.
- The WM Input Prices Index decreased from 72.0 in December 2022 to 70.8 in January 2023.
- Out of the 12 UK regions, the WM was the highest for Future Business Activity in Jan 2023. Yorkshire and Humbershire was the 2nd highest with 75.4 and Northern Ireland was the lowest at 53.6.
- Quarter-on-quarter analysis shows that, for the WM region, GDP decreased by 0.3% in Quarter 2 2022, while UK-wide there was growth of 0.1%.
- In quarter 2 2022, the quarterly GDP indices for the WM was 95.4, a decrease from 95.7 previous quarter.
- The latest quarter-on-quarter GDP percentage change to Quarter 2 2022 shows for the WM that overall the construction sector, total services sector and 12 industries contracted. While 1 industry (water supply, sewerage) was flat at 0% and the overall agriculture, forestry and fishing sector, total production and 5 industries recorded growth in GDP.
Regional Labour Market Summary
- The WM regional employment rate (aged 16 – 64 years) was 74.5%, increasing by 0.4 percentage points (pp) but when compared to the same period in the previous year, the employment rate was 0.6pp lower. The UK employment rate was 75.6%, an increase of 0.2pp when compared to the previous quarter and also an increase of 0.2pp when compared to the previous year.
- The WM regional unemployment rate (aged 16 years and over) was 4.4%, which has decreased by 0.3pp since the previous quarter and a decrease of 0.4pp from the previous year. The UK unemployment rate was 3.7%, an increase of 0.1pp from the previous quarter but a 0.3pp decrease when compared to the previous year.
- For the three months ending December 2022, the WM region economic inactivity rate (aged 16 – 64 years) was 21.9%, a decrease of 0.2pp from the previous quarter and an increase of 1.0pp when compared to the previous year. The UK economic inactivity rate was 21.4%, a decrease of 0.3pp from the previous quarter but an increase of 0.1pp from the previous year.
WMCA (3 LEP) Claimant Summary
(To note we are unable to breakdown the reasons for claiming as these figures cover multiple ‘benefits’ including in work and housing)
- There were 143,950 claimants in the West Midlands Combined Authority (WMCA) (3 LEP) area in Jan 2023. Since Dec 2022, there has been an increase of 0.5% (+670) claimants in the WMCA (3 LEP) area, which matched the UK growth rate. When compared to March 2020 (pre-pandemic figures), the number of claimants has increased by 22.4% (+26,360) in the WMCA (3 LEP) area, with the UK increasing by 20.0% over the same period.
- Overall, for the WMCA (3 LEP) the number of claimants as a proportion of residents aged 16 – 64 years old was 5.5% compared to 3.6% for the UK in January 2023.
- There were 25,780 youth claimants in the WMCA (3 LEP) area in January 2023. Since December 2022, there was an increase of 0.2% (+60) of youth claimants in the WMCA (3 LEP) area, while the UK increased by 0.3%. When compared to March 2020 (pre-pandemic figures), the number of youth claimants has increased by 14.2% (+3,200) in the WMCA (3 LEP) area, with the UK increasing by 8.6% over the same period.
- Overall, for the WMCA (3 LEP) the number of youth claimants as a percentage of residents aged 18-24 years old was 6.8% compared to 4.7% for the UK in January 2023.
- Approximately two in five (43%) businesses reported that importing goods from the EU was more difficult as a result of the UK’s departure from the EU.
- Just over 30% of businesses said they found it more difficult to export goods to the EU as a result of the UK’s departure from the EU.
- Manufacturers were significantly more impacted by the UK’s departure from the EU than services firms, particularly with regard to importing and exporting goods and recruiting EU workers.
- The most commonly encountered issue by businesses was increased costs, followed by supply chain issues and border delays. Microbusinesses and SMEs were more acutely impacted by such issues than larger businesses.
- Businesses were more likely to either pass on increased costs to customers or absorb increased costs themselves than any other action to overcome issues relating to the UK’s departure from the EU.
Fertility rates and childcare costs – labour market implications
- The total fertility rate in the UK has been below replacement level since 1973 and decreased year on year between 2012 and 2020. To ensure long-term ‘natural’ replacement of the population women would need to have, on average, 2.08 children. The total fertility rate in 2021 was 1.61 children per woman.
- With people living longer, countries with fertility rates below replacement level risk adverse effects on public finances and standards of living. Where there is an elderly population with substantial health and social care the costs of supporting them will fall on a smaller group of workers.
- Such countries also risk struggling to have enough young people entering the workforce to replace those reaching retirement age. Without increasing the economic activity rate by getting more older people back into the workforce or reducing youth unemployment, then countries will either need to increase net migration or face the consequences of a reduced workforce. An important counterbalance to relatively low fertility rates in the UK over recent decades has been in-migration.
- Few studies have quantified the impact on productivity from childcare-related career breaks in the UK but evidence provided to the Treasury Commons Select Committee suggested that if men and women participated in the economy at the same levels, GDP could increase by 10% by 2030.
- The World Bank has argued that increasing the childcare workforce to respond to current demand could create up to 43 million new jobs in high, upper middle, lower middle and low income countries. Investing in childcare could also offer ways for companies to attract new staff and retain existing staff. Expensive childcare can make it difficult for families to escape poverty even when they are in full-time work.
Ethnic pay gaps – evidence from UK-born graduates
- Highly educated Black men earn 17% less than comparably qualified and situated White men. The under-representation of ethnic minorities in higher-paying jobs and their shorter tenure with their firms are two of the most significant drivers of earnings differences attributable to observed (measurable) characteristics.
- Unobserved factors and discrimination account for the majority (70%) of ethnic gaps between White and non-White employees. Certain employers appear to discriminate when hiring, and it is likely that discrimination can have a negative impact on ethnic minorities’ access to training (which influences productivity), promotions, or moving to better jobs.
- There is potential for social prescribing to impact positively on the well-being of young people. While there is little tangible evidence of this effect currently, the novelty of this review concerns the further potential for impact on economic and employability aspects – and the links between these and well-being.
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI, WMREDI or the University of Birmingham.